Most nontraditional home loans -- especially subprime mortgages -- may become delinquent within a year anyway, study says.
By E. Scott Reckard
May 27, 2009
Modifying nontraditional mortgages will succeed for many people, but most such modifications will end up in default within a year, a major ratings company predicts.
The Fitch Ratings study examined subprime mortgages, jumbo loans and little-documented home loans that Wall Street bundled up to back mortgage bonds from 2005 through 2007. Those were the last years of the housing frenzy before delinquencies skyrocketed, home prices plummeted and investors' appetite for such "private-label" securities evaporated.
In the study released Tuesday, Fitch projected that 55% to 65% of these loans that are being reworked to avoid foreclosures may end up at least 60 days delinquent anyway within 12 months. For the subprime loans -- the mortgages for the riskiest borrowers, with credit dings, bankruptcies and outsized debt loads -- the projected 60-day delinquent rate was 65% to 75%.
Fitch based its projection partly on "shrinking disposable income, escalating job losses and possibly some deceptive practices on the part of the borrowers themselves," the New York company said.
The estimate comes as lenders and regulators, along with the Obama administration's $75-billion Making Home Affordable program, step up efforts to get mortgage terms modified to stem soaring foreclosures.
"Loan modifications hold clear value for many homeowners provided the modified payments are sustainable, but more often than not, reducing the home payments to an affordable level may not be enough to rescue borrowers who are overextended on other credit and expenses," said Diane Pendley, a managing director at Fitch.
The study said borrowers who are current on their loans are angry that others who took on too much debt and missed payments are benefiting from lowered interest rates, extended repayment terms and other modifications. There is also evidence that some able borrowers are choosing not to honor their obligations, the study said.
About 7% of U.S. home loans packaged into securities without government support were modified through April, including 18% of subprime loans, Fitch said. It expects the pace of modifications to increase.
The study excluded loans guaranteed or owned by Freddie Mac and Fannie Mae, the giant government-controlled mortgage firms, and home loans held on the books of lenders.
About 22% of the nearly $10 trillion in U.S. mortgages currently outstanding are held in the private-label mortgage pools that Fitch studied.
scott.reckard@latimes.com
Wednesday, May 27, 2009
Tuesday, May 26, 2009
Mortgage Modifications Fail to Halt Defaults
Fitch Ratings is slated to release a report this week showing that 65 to 75 percent of modified subprime loans will fall behind by 60 days or more within one year of the loan change.
Although some experts believe that reducing the principal amount owed is the best way to keep distressed borrowers in their homes, Fitch found that 30 to 40 percent of loans that had lowered principal amounts were still redefaulting after 12 months.
Borrowers are redefaulting at a high rate because home prices continue to fall, unemployment is rising, and because of public pressure to help home owners, even those who are still likely to default even after receiving assistance.
Source: Wall Street Journal (05/26/09) Copyright Information Inc.
Although some experts believe that reducing the principal amount owed is the best way to keep distressed borrowers in their homes, Fitch found that 30 to 40 percent of loans that had lowered principal amounts were still redefaulting after 12 months.
Borrowers are redefaulting at a high rate because home prices continue to fall, unemployment is rising, and because of public pressure to help home owners, even those who are still likely to default even after receiving assistance.
Source: Wall Street Journal (05/26/09) Copyright Information Inc.
Monday, May 25, 2009
Web Sites Help Owners Fight Foreclosure
Some home owners facing foreclosure are fighting for their rights to loan modifications and other help.
They are turning to Web sites like Consumer Warning Network and Living Lies, a foreclosure defense blog, for advice. Living Lies founder Brad Keiser also offers daylong seminars for $149.
The message at both Web sites and in person is the same: People who received loans they couldn’t afford are victims of investor greed.
Living Lies advises home owners on representing themselves in court, and walks them through the steps, including how to get on the judge’s calendar and how to notify all parties. If this seems too onerous, the site also includes a list of attorneys who do this kind of work.
Source: St. Petersburg Times, Susan Taylor Martin (05/25/2009)
They are turning to Web sites like Consumer Warning Network and Living Lies, a foreclosure defense blog, for advice. Living Lies founder Brad Keiser also offers daylong seminars for $149.
The message at both Web sites and in person is the same: People who received loans they couldn’t afford are victims of investor greed.
Living Lies advises home owners on representing themselves in court, and walks them through the steps, including how to get on the judge’s calendar and how to notify all parties. If this seems too onerous, the site also includes a list of attorneys who do this kind of work.
Source: St. Petersburg Times, Susan Taylor Martin (05/25/2009)
Thursday, May 21, 2009
Bill Offers Renewed HOPE for Troubled Owners
The Obama Administration on Wednesday signed a bill that attempts to inject some hope into the housing rescue program--called Hope for Homeowners.
The original program asked banks to reduce mortgage balances voluntarily to 90 percent of a home’s current market value. The loan would then be refinanced into an FHA mortgage.
The program didn’t work because it forced lenders to sell short with no chance of an upside, says Tom Kelly, a spokesman for JP Morgan Chase.
The new version of Hope sweetens the pot by paying lenders $1,000 for every Hope-refinanced loan and easing the amount they have to write off by allowing loans of up to 93 percent of the market value.
But the most important change is that it allows the U.S. Department of Housing and Urban Development, FHA’s parent agency, to share home-price appreciation with investors, up to the appraised value of the property when the existing loan was first issued.
This bill originally included cramdown legislation that would have allowed bankruptcy judges to modify the first mortgage, but that portion of the legislation was defeated in the Senate.
Source: CNNMoney, Les Christie (05/20/2009)
The original program asked banks to reduce mortgage balances voluntarily to 90 percent of a home’s current market value. The loan would then be refinanced into an FHA mortgage.
The program didn’t work because it forced lenders to sell short with no chance of an upside, says Tom Kelly, a spokesman for JP Morgan Chase.
The new version of Hope sweetens the pot by paying lenders $1,000 for every Hope-refinanced loan and easing the amount they have to write off by allowing loans of up to 93 percent of the market value.
But the most important change is that it allows the U.S. Department of Housing and Urban Development, FHA’s parent agency, to share home-price appreciation with investors, up to the appraised value of the property when the existing loan was first issued.
This bill originally included cramdown legislation that would have allowed bankruptcy judges to modify the first mortgage, but that portion of the legislation was defeated in the Senate.
Source: CNNMoney, Les Christie (05/20/2009)
Wednesday, May 20, 2009
A Battle Plan for Refinancing Your Mortgage
By KAREN BLUMENTHAL With mortgage rates holding below 5%, there has rarely been a better time to refinance your home. But with a one-two punch of tighter credit and falling prices roiling homeowners, the process has never been more difficult.
In the Sacramento, Calif., area, Michael McGee of Winchester McGee Financial estimates that one in four of his customers can't get a loan approved. In Plano, Texas, Rodney Anderson, a mortgage lender, says the rate sheet of mortgage programs he can offer customers has shrunk to two pages from 42 during the housing boom.
That doesn't mean you shouldn't investigate your options. Lowering your mortgage payment -- or at least locking in a long-term low rate -- can free up cash for other needs, such as repaying other debt or replenishing your retirement accounts, while reducing your financial stress. In addition, if you're older than 40, shortening your mortgage term now could help leave you mortgage-free in retirement, reducing the income you'll need to generate from your battered 401(k).
But before you jump in, you should know that most single-family home loans today need to fall within Fannie Mae and Freddie Mac limits -- up to $417,000 in most places, and up to $729,750 in certain high-cost cities such as San Francisco and New York. "Jumbo" mortgages, or those larger than those limits, are still very hard to find.
Then you'll need two crucial and tough-to-acquire bits of information: your credit score and your home's current value. Those will determine whether you can refinance at all and how close you can get to the lowest rates available. Even then, you may find the process unusually long and unpleasant; some banks are taking up to 90 days to complete a refinancing.
If you got your current mortgage in the past few years, when less documentation was needed, you may be surprised by the financial colonoscopy that awaits you. You will need pay stubs, bank statements, brokerage statements and maybe tax returns to convince the lender that you can and will repay the loan. If you're self-employed, you may be asked for a profit-and-loss statement for this year; if you rely on bonus income, expect the lender to assume this year's bonus will be a lot less than last year's.
Here's what you need to know before you start the application process:
Securing an appraisal. The trickier question: With home values sinking in some parts of the country, what's your home worth? Appraisers may use foreclosure sales or other distressed sales in your area to assess your home's value, not just conventional sales. And since the appraisal is for the benefit of the lender, not the consumer, you have little, if any, say in the process.
Getting your number. Finding your actual scores is a bit like trying to read tarot cards. The Web site Credit Karma (http://www.creditkarma.com/) offers a free credit score, but it's the TransUnion TransRisk score, not your FICO score. Experian (http://www.experian.com/) sells consumers its Experian Plus scores but doesn't make its FICO score available directly to the public.
Whether to refinance an adjustable-rate loan that is currently fairly cheap depends almost entirely on how long you plan to own the home. If you think you will still be there in three to five years, when interest rates may be substantially higher, it may make a lot of sense to lock in at low rates now. Many brokers and lenders expect rates to stay low at least until the fall, but they also expect rates to jump quickly once they move up.
Finally, you should be able to lock in a current rate without an additional charge. But since the loan process may last longer than your 60-day rate guarantee, you may want to wait until closing is in sight to lock in.
In the Sacramento, Calif., area, Michael McGee of Winchester McGee Financial estimates that one in four of his customers can't get a loan approved. In Plano, Texas, Rodney Anderson, a mortgage lender, says the rate sheet of mortgage programs he can offer customers has shrunk to two pages from 42 during the housing boom.
That doesn't mean you shouldn't investigate your options. Lowering your mortgage payment -- or at least locking in a long-term low rate -- can free up cash for other needs, such as repaying other debt or replenishing your retirement accounts, while reducing your financial stress. In addition, if you're older than 40, shortening your mortgage term now could help leave you mortgage-free in retirement, reducing the income you'll need to generate from your battered 401(k).
But before you jump in, you should know that most single-family home loans today need to fall within Fannie Mae and Freddie Mac limits -- up to $417,000 in most places, and up to $729,750 in certain high-cost cities such as San Francisco and New York. "Jumbo" mortgages, or those larger than those limits, are still very hard to find.
Then you'll need two crucial and tough-to-acquire bits of information: your credit score and your home's current value. Those will determine whether you can refinance at all and how close you can get to the lowest rates available. Even then, you may find the process unusually long and unpleasant; some banks are taking up to 90 days to complete a refinancing.
If you got your current mortgage in the past few years, when less documentation was needed, you may be surprised by the financial colonoscopy that awaits you. You will need pay stubs, bank statements, brokerage statements and maybe tax returns to convince the lender that you can and will repay the loan. If you're self-employed, you may be asked for a profit-and-loss statement for this year; if you rely on bonus income, expect the lender to assume this year's bonus will be a lot less than last year's.
Here's what you need to know before you start the application process:
What's your equity? Having some equity in your house is key to getting a new loan. If your current mortgage is less than 80% of the value of your home or less than 75% of your condominium or co-op, you should have refinancing options.
If your mortgage is between 80% and 105% of your home value, you're current on your payments and your loan was bought by Fannie Mae or Freddie Mac, you may be able to refinance under a two-month-old government program called "Making Home Affordable." Some kinks are still being worked out, and Fannie and Freddie have different requirements, so go to the program's Web site (http://www.makinghomeaffordable.gov/) or contact your mortgage servicer to see if you qualify.
Sometimes under this program, Fannie and Freddie will waive appraisals and other underwriting steps. And if you're refinancing a Veterans Administration or Federal Housing Administration loan, a new appraisal isn't needed.
Securing an appraisal. The trickier question: With home values sinking in some parts of the country, what's your home worth? Appraisers may use foreclosure sales or other distressed sales in your area to assess your home's value, not just conventional sales. And since the appraisal is for the benefit of the lender, not the consumer, you have little, if any, say in the process.
On May 1, a new Home Valuation Code of Conduct took effect, which is intended to keep mortgage brokers and others from influencing appraisal values. As a result, only lenders, not mortgage salesmen, may hire and pay appraisers, often using middlemen known as appraisal management companies.
The process is too new to know what the impact will be, but some mortgage lenders and brokers fret that national appraisal management companies may not know much about their areas. "We're getting calls from Indiana about a co-op on 17th Street," says Melissa Cohn, president of Manhattan Mortgage Co. in New York, one of the nation's largest mortgage originators.
If you're worried about what your home will be valued at, see if a friendly real-estate agent will provide you with recent similar sales in your neighborhood. Otherwise, you may have to fork over an appraisal fee -- $350 to $500, depending on where you live -- to find out if you have enough equity, even if you don't qualify for the loan.
Your credit score. Whether you get today's lowest rates will depend next on your credit score, a measure of how big a credit risk you may be. Borrowers who want the best rates generally need a FICO score -- based on a formula developed by Fair Isaac Corp. -- of 740 or above out of a possible 850. Those with FICO scores between 620 and 740 will pay either higher interest rates or more upfront "points" or fees, and those with scores below 620 may not be able to land a loan at all.
That seems simple enough until you realize that the nation's three main credit bureaus -- TransUnion, Experian and Equifax -- all calculate their FICO scores differently. So lenders typically pull all three scores and take the middle one, or a couple's lowest middle score.
Getting your number. Finding your actual scores is a bit like trying to read tarot cards. The Web site Credit Karma (http://www.creditkarma.com/) offers a free credit score, but it's the TransUnion TransRisk score, not your FICO score. Experian (http://www.experian.com/) sells consumers its Experian Plus scores but doesn't make its FICO score available directly to the public.
You can buy TransUnion and Equifax FICO scores from MyFico.com, but they may not be the same scores your lender sees. That's because you actually have multiple FICO scores, with different equations for auto loans, credit cards and mortgages.
All those scores, however, should be fairly consistent, giving you a good idea of whether your credit is good or great. If your scores are lower than you'd expect or if they vary widely, check your credit reports for errors. You can retrieve all three credit reports free of charge once a year at AnnualCreditReport.com.
If you don't meet the cutoffs, both Credit Karma and MyFico offer suggestions on how to improve your scores.
Refinancing may still make sense even if a weak score or other issues mean you have to pay extra points or a somewhat higher rate. Total up the points and other costs of your new loan, including closing costs, and divide it by your monthly mortgage savings. If you can recover your costs in two or three years -- and you plan to stay in your home longer than that -- you can save a lot of money over time.
Before you second that. If you have a second mortgage on the property or a home-equity credit line, you'll have one more hurdle. Some second lenders are refusing to stay in second place when you try to refinance your first mortgage. In that case, your options are to roll the two loans together, if you have enough equity; pay off your second loan; or find a new second lender who will allow you to refinance the first loan.
The condo hurdle. If you live in a condo or co-op, your building will also have to meet more-rigorous guidelines. Ms. Cohn of Manhattan Mortgage says lenders are tightening up on how much insurance a building must have, its occupancy rate and how much space in the building can be used for commercial purposes. She says she now makes sure buildings will be approved before moving forward with an application.
Shortening your loan. If your current loan is less than three or four years old, it may make sense to start over with a new 30-year mortgage. But otherwise, try to avoid going backward. If you last refinanced in the 2003 boom, for example, go for a 15-year or 20-year mortgage to cut your future interest payments and pay off your home quicker.
Whether to refinance an adjustable-rate loan that is currently fairly cheap depends almost entirely on how long you plan to own the home. If you think you will still be there in three to five years, when interest rates may be substantially higher, it may make a lot of sense to lock in at low rates now. Many brokers and lenders expect rates to stay low at least until the fall, but they also expect rates to jump quickly once they move up.
Finally, you should be able to lock in a current rate without an additional charge. But since the loan process may last longer than your 60-day rate guarantee, you may want to wait until closing is in sight to lock in.
Email: familymoney@wsj.com
Printed in The Wall Street Journal, page D1
Tuesday, May 19, 2009
Housing Starts Hit Record Low in April
Housing starts hit a record low in April, the U.S. Commerce Department reported, but the news wasn't all bad as single-family construction rose 2.8 percent, the second straight month of gains in that sector.
Overall, housing starts fell 13 percent to an annual rate of 458,000, driven by the decline in construction of apartment buildings and condominiums. Building permits, an indicator of future construction, fell 3.3 percent to a record low of 494,000.
Here's a look at housing starts at the regional level:
● Northeast: fell 31 percent
● Midwest: dropped 21 percent
● South: declined 21 percent
● West: rose 43 percent
Analysts believe that while joblessness will keep some people from starting new households, increased demand for more housing is inevitable.
“Now that fewer homes are hitting the market for sale, the growing U.S. population will have fewer homes to choose from,” Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York, wrote in a note to clients. “This will undoubtedly be a game changer for inventories and prices.”
Source: Bloomberg, Bob Willis (05/19/2009)
Overall, housing starts fell 13 percent to an annual rate of 458,000, driven by the decline in construction of apartment buildings and condominiums. Building permits, an indicator of future construction, fell 3.3 percent to a record low of 494,000.
Here's a look at housing starts at the regional level:
● Northeast: fell 31 percent
● Midwest: dropped 21 percent
● South: declined 21 percent
● West: rose 43 percent
Analysts believe that while joblessness will keep some people from starting new households, increased demand for more housing is inevitable.
“Now that fewer homes are hitting the market for sale, the growing U.S. population will have fewer homes to choose from,” Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York, wrote in a note to clients. “This will undoubtedly be a game changer for inventories and prices.”
Source: Bloomberg, Bob Willis (05/19/2009)
Monday, May 18, 2009
Worst Still Not Over for Fannie and Freddie
Fannie Mae and Freddie Mac are facing critical financial, operational, and compliance issues, federal regulators said Monday.
"With new senior management teams, each enterprise has made strides in remediating problems," the Federal Housing Finance Agency said in a report. "But they still face numerous significant challenges including building and retaining staff and correcting operational and credit management weaknesses that led to conservatorship."
Together, Fannie and Freddie accounted for 73 percent of mortgage originations in the first six months of 2008, and they are slated to play key roles in the government’s foreclosure prevention plan."
The problems of the last two years in the financial markets are slowly abating, but the challenges in the housing markets continue," says James Lockhart, director of the FHFA.
Source: CNNMoney.com, Tami Lubby (05/18/2009)
"With new senior management teams, each enterprise has made strides in remediating problems," the Federal Housing Finance Agency said in a report. "But they still face numerous significant challenges including building and retaining staff and correcting operational and credit management weaknesses that led to conservatorship."
Together, Fannie and Freddie accounted for 73 percent of mortgage originations in the first six months of 2008, and they are slated to play key roles in the government’s foreclosure prevention plan."
The problems of the last two years in the financial markets are slowly abating, but the challenges in the housing markets continue," says James Lockhart, director of the FHFA.
Source: CNNMoney.com, Tami Lubby (05/18/2009)
Friday, May 15, 2009
Bank of America Revises Short Sale Policy
Bank of America, one of the country’s largest mortgage lenders, says it is loosening its policies on short sales in response to the U.S. Treasury Department’s announcement last week that it would increase incentives for lenders to work out short sale deals.
The government’s plan is a boon to banks, says David Sunline, BofA’s real estate management executive, because it provides guidance when there are multiple liens, a potentially litigious issue for lenders.
In the past, the bank followed Fannie Mae’s policy of giving second lien holders about 10 percent of the second mortgage balance in a short sale. Now when it holds the second lien, BofA will accept 5 percent of the net proceeds of the short sale, Sunline says. When it is the first lien holder, it will offer 5 percent to the holder of the second lien.
Sunline says home owners considering short sales should contact the bank within five days of getting an offer on the home and expect its cooperation as long as the offer is within the range of other sales in the area and the borrower can demonstrate financial hardship.
Source: The New York Times, Bob Tedeschi (05/15/2009)
The government’s plan is a boon to banks, says David Sunline, BofA’s real estate management executive, because it provides guidance when there are multiple liens, a potentially litigious issue for lenders.
In the past, the bank followed Fannie Mae’s policy of giving second lien holders about 10 percent of the second mortgage balance in a short sale. Now when it holds the second lien, BofA will accept 5 percent of the net proceeds of the short sale, Sunline says. When it is the first lien holder, it will offer 5 percent to the holder of the second lien.
Sunline says home owners considering short sales should contact the bank within five days of getting an offer on the home and expect its cooperation as long as the offer is within the range of other sales in the area and the borrower can demonstrate financial hardship.
Source: The New York Times, Bob Tedeschi (05/15/2009)
Wednesday, May 13, 2009
Price Stabilization Is First Step to Recovery
Home prices must stabilize before the broader economy can turn around, a panel of housing and economic experts said yesterday at a real estate summit hosted by the NATIONAL ASSOCIATION OF REALTORS® as part of its Midyear Legislative Meetings in Washington, D.C., this week.
Although there are encouraging signs in the housing market—including a pick-up of home sales in previously hard-hit markets, record affordability, and continuing low interest rates—prices have not yet hit bottom.
That’s keeping many households on the fence and making it hard for those who do jump in to get financing in the conventional market. What’s more, it’s making it harder for troubled homeowners to refinance, leading to more distressed sales, and thus further erosion in prices.
Tax Credit Bridge Loans on the Way
To put a floor under the market, the federal government must continue to intervene, panelists said, and expanding the first-time homebuyer tax credit is a good place to start. The credit should be expanded to all households, including those with higher incomes, increased significantly in value, perhaps to $15,000 to $16,000 instead of the current $8,000.
“Then it would start move real estate,” said Robert Sibcy, president of Sibcy Cline, REALTORS®, based in Ohio.
In a positive move, the U.S. Department of Housing and Urban Development is set to roll out guidelines permitting HUD-approved lenders, public housing finance agencies, and some nonprofit organizations to make bridge loans to home buyers. The loans would be collateralized by the $8,000 tax credit, giving buyers the upfront funds for a down payment.
The inability to use the credit for the down payment has been a major stumbling block for the tax credit. NAR has been calling for HUD to use its authority to allow the bridge loans.
During the summit, HUD Secretary Shaun Donovan announced that HUD has decided to allow bridge loans, sparking a loud cheer of appreciation from more than 1,000 REALTORS® attending the session.
“We want FHA consumers to access the credit to use as a down payment,” Donovan said. “I want to thank NAR for its partnership with FHA.” More details on the guidelines will be released in a few days, he said.
Donovan said the credit is expected to stimulate 100,000 first-time homebuyer purchases and 60,000 move-up purchases this year before it expires Dec. 1.
Further Government Actions Could Help
The credit alone isn’t enough to spur sales, many panelists said. Barry Bluestone, a professor of political economy at Northwestern University, called for the federal government to step in for a defined period of time, such as 18 months, to insure buyers’ home equity.
Providing protection against price drops would remove buyers’ reluctance to get into the market now, and since the program would be of limited duration, it could lead to a critical mass of households buying in the short-term and thereby shore up prices. Bluestone said he envisions the federal government insuring up to 85 percent of an owner’s home equity.
“This could stabilize prices over the next 18 months and cost the government practically nothing,” he said. “A small, temporary program can have a huge impact. It’s an idea whose time has come.”
Foreclosure Actions
The other way to stabilize prices is to finally get a handle on foreclosures, which exert heavy downward pressure on prices. Donovan said the administration is making gains in this effort with the voluntary cooperation of 14 of the country’s largest mortgage servicers, representing 75 percent of the market.
But several panelists said the voluntary effort hasn’t proven to be effective yet, and that a new wave of foreclosures is expected this summer.
“If modifications don’t work, we need to stop waiting for voluntary compliance,” said John Taylor, CEO of the National Community Reinvestment Coalition. “The government should buy [the loans] at fair market value, take them out of the market, modify them, and end the foreclosure crisis.”
The big worry about federal intervention among several panelists is the apparent lack of an exit strategy. It tends to be far easier for the government to get involved in the market, through interventions like the giant federal bank rescue plan, than it is to get back out.
“Right now the Federal Reserve is the mortgage-backed securities market,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association. “I don’t know the exit strategy and how long this can continue. It’s scaring off other investors. If the Fed stops buying, [what happens?] How do we get out of it?”
Don't Skimp on Mortgage Modifications
Martin Feldstein, the noted deficit hawk who chaired the Council of Economic Advisors for President Ronald Reagan, said mortgage modifications are one area where the administration shouldn’t skimp, even at the cost of growing the federal deficit, so he was disappointed that the administration is balking at the cost of that.
Referring to comments made by HUD Secretary Donovan, he said, “I’m disappointed the HUD secretary said it’s too expensive for the government to deal with negative equity mortgages…. We still have not dealt with the overhang of underwater mortgages.”
Even without further federal intervention the housing market will turn around, the panelists agreed.
The unknowns are how long recovery will take, how much damage will be done to the economy, and how strong the recovery will be.
The Shape of Things to Come
When the recovery does take hold, the housing market will be very different from what it was before, panelists said. The boom years of 2002–2007 were fueled not by income growth but by debt. After what’s been learned from that debacle, any future growth will have to be based on income growth, said Sarah Rosen Wartell, executive vice president of the Center for American Progress. Such growth will likely be far more moderate, but also more sustainable.
Wartell said the Obama administration was right to focus both on short-term stimulus and investment in clean energy, education, and healthcare reform, because those are the kinds of investments that can lead to the long-term income growth.
—Robert Freedman, REALTOR® Magazine
Although there are encouraging signs in the housing market—including a pick-up of home sales in previously hard-hit markets, record affordability, and continuing low interest rates—prices have not yet hit bottom.
That’s keeping many households on the fence and making it hard for those who do jump in to get financing in the conventional market. What’s more, it’s making it harder for troubled homeowners to refinance, leading to more distressed sales, and thus further erosion in prices.
Tax Credit Bridge Loans on the Way
To put a floor under the market, the federal government must continue to intervene, panelists said, and expanding the first-time homebuyer tax credit is a good place to start. The credit should be expanded to all households, including those with higher incomes, increased significantly in value, perhaps to $15,000 to $16,000 instead of the current $8,000.
“Then it would start move real estate,” said Robert Sibcy, president of Sibcy Cline, REALTORS®, based in Ohio.
In a positive move, the U.S. Department of Housing and Urban Development is set to roll out guidelines permitting HUD-approved lenders, public housing finance agencies, and some nonprofit organizations to make bridge loans to home buyers. The loans would be collateralized by the $8,000 tax credit, giving buyers the upfront funds for a down payment.
The inability to use the credit for the down payment has been a major stumbling block for the tax credit. NAR has been calling for HUD to use its authority to allow the bridge loans.
During the summit, HUD Secretary Shaun Donovan announced that HUD has decided to allow bridge loans, sparking a loud cheer of appreciation from more than 1,000 REALTORS® attending the session.
“We want FHA consumers to access the credit to use as a down payment,” Donovan said. “I want to thank NAR for its partnership with FHA.” More details on the guidelines will be released in a few days, he said.
Donovan said the credit is expected to stimulate 100,000 first-time homebuyer purchases and 60,000 move-up purchases this year before it expires Dec. 1.
Further Government Actions Could Help
The credit alone isn’t enough to spur sales, many panelists said. Barry Bluestone, a professor of political economy at Northwestern University, called for the federal government to step in for a defined period of time, such as 18 months, to insure buyers’ home equity.
Providing protection against price drops would remove buyers’ reluctance to get into the market now, and since the program would be of limited duration, it could lead to a critical mass of households buying in the short-term and thereby shore up prices. Bluestone said he envisions the federal government insuring up to 85 percent of an owner’s home equity.
“This could stabilize prices over the next 18 months and cost the government practically nothing,” he said. “A small, temporary program can have a huge impact. It’s an idea whose time has come.”
Foreclosure Actions
The other way to stabilize prices is to finally get a handle on foreclosures, which exert heavy downward pressure on prices. Donovan said the administration is making gains in this effort with the voluntary cooperation of 14 of the country’s largest mortgage servicers, representing 75 percent of the market.
But several panelists said the voluntary effort hasn’t proven to be effective yet, and that a new wave of foreclosures is expected this summer.
“If modifications don’t work, we need to stop waiting for voluntary compliance,” said John Taylor, CEO of the National Community Reinvestment Coalition. “The government should buy [the loans] at fair market value, take them out of the market, modify them, and end the foreclosure crisis.”
The big worry about federal intervention among several panelists is the apparent lack of an exit strategy. It tends to be far easier for the government to get involved in the market, through interventions like the giant federal bank rescue plan, than it is to get back out.
“Right now the Federal Reserve is the mortgage-backed securities market,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association. “I don’t know the exit strategy and how long this can continue. It’s scaring off other investors. If the Fed stops buying, [what happens?] How do we get out of it?”
Don't Skimp on Mortgage Modifications
Martin Feldstein, the noted deficit hawk who chaired the Council of Economic Advisors for President Ronald Reagan, said mortgage modifications are one area where the administration shouldn’t skimp, even at the cost of growing the federal deficit, so he was disappointed that the administration is balking at the cost of that.
Referring to comments made by HUD Secretary Donovan, he said, “I’m disappointed the HUD secretary said it’s too expensive for the government to deal with negative equity mortgages…. We still have not dealt with the overhang of underwater mortgages.”
Even without further federal intervention the housing market will turn around, the panelists agreed.
The unknowns are how long recovery will take, how much damage will be done to the economy, and how strong the recovery will be.
The Shape of Things to Come
When the recovery does take hold, the housing market will be very different from what it was before, panelists said. The boom years of 2002–2007 were fueled not by income growth but by debt. After what’s been learned from that debacle, any future growth will have to be based on income growth, said Sarah Rosen Wartell, executive vice president of the Center for American Progress. Such growth will likely be far more moderate, but also more sustainable.
Wartell said the Obama administration was right to focus both on short-term stimulus and investment in clean energy, education, and healthcare reform, because those are the kinds of investments that can lead to the long-term income growth.
—Robert Freedman, REALTOR® Magazine
Tuesday, May 12, 2009
For-Sale Housing Inventory Getting Smaller
The supply of properties on the market at the end of April declined 3.6 percent from the previous month, according to an analysis compiled by ZipRealty Inc.
ZipRealty looked at information from multiple listing services in 29 major markets.
Typically, the housing inventory rises in April an average of 4.8 percent, according to Zelman & Associates research firm.
The unknown factor that keeps this from being unquestionably good news is the number of foreclosures held by banks that aren’t listing them. For instance, Fannie Mae and Freddie Mac list only about 35 percent to 50 percent of the homes they hold.
Noted housing economist Thomas Lawler discounts the foreclosure concerns, saying that the decline in listings means "the bottom in home prices is much closer than many pundits believe."
Source: The Wall Street Journal, James R. Hagerty (05/12/2009)
ZipRealty looked at information from multiple listing services in 29 major markets.
Typically, the housing inventory rises in April an average of 4.8 percent, according to Zelman & Associates research firm.
The unknown factor that keeps this from being unquestionably good news is the number of foreclosures held by banks that aren’t listing them. For instance, Fannie Mae and Freddie Mac list only about 35 percent to 50 percent of the homes they hold.
Noted housing economist Thomas Lawler discounts the foreclosure concerns, saying that the decline in listings means "the bottom in home prices is much closer than many pundits believe."
Source: The Wall Street Journal, James R. Hagerty (05/12/2009)
Tax Credit Can Be Used for Down Payment
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment.
Previously, most buyers wouldn't receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.
“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at "The Real Estate Summit: Advancing the U.S. Economy," at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C..
He says FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.
Other Solutions for Today's Market
During his address at the summit, Donovan went on to say that the Obama administration plans to further stabilize the housing market. “I do think we have some early signs that the market overall is stabilizing,” Donovan says. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”
The morning session included a panel discussion that was moderated by CNBC’s Ron Insana. Panelists examined cutting-edge solutions necessary to promote and preserve homeownership and real estate development, stimulate the economy, and protect the nation’s taxpayers. They also shared their ideas on what the role and responsibility of the federal government is in the revitalization effort.
“Right now the Federal Reserve is the market,” said panelist Jay Brinkman, chief economist for the Mortgage Bankers Association. “What will be the effect when the Fed stops buying?” Brinkman explained that an exit strategy must be planned for the long-term; the federal government cannot continue to support the mortgage markets indefinitely.
“We are thrilled that so many high-caliber individuals were able to join us today at this important meeting to promote stability in the housing market and the U.S. economy,” said NAR President Charles McMillan. “We look forward to an ongoing dialogue and action toward this goal, during our midyear meetings this week and beyond.”
The real estate summit is part of the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo. During the week ending May 16, more than 8,500 REALTORS® will attend meetings, visit lawmakers and inspire action on Capitol Hill.
Source: NAR
Previously, most buyers wouldn't receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.
“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at "The Real Estate Summit: Advancing the U.S. Economy," at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C..
He says FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.
Other Solutions for Today's Market
During his address at the summit, Donovan went on to say that the Obama administration plans to further stabilize the housing market. “I do think we have some early signs that the market overall is stabilizing,” Donovan says. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”
The morning session included a panel discussion that was moderated by CNBC’s Ron Insana. Panelists examined cutting-edge solutions necessary to promote and preserve homeownership and real estate development, stimulate the economy, and protect the nation’s taxpayers. They also shared their ideas on what the role and responsibility of the federal government is in the revitalization effort.
“Right now the Federal Reserve is the market,” said panelist Jay Brinkman, chief economist for the Mortgage Bankers Association. “What will be the effect when the Fed stops buying?” Brinkman explained that an exit strategy must be planned for the long-term; the federal government cannot continue to support the mortgage markets indefinitely.
“We are thrilled that so many high-caliber individuals were able to join us today at this important meeting to promote stability in the housing market and the U.S. economy,” said NAR President Charles McMillan. “We look forward to an ongoing dialogue and action toward this goal, during our midyear meetings this week and beyond.”
The real estate summit is part of the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo. During the week ending May 16, more than 8,500 REALTORS® will attend meetings, visit lawmakers and inspire action on Capitol Hill.
Source: NAR
Friday, May 8, 2009
House Passes Bill to Protect Borrowers
A bill passed by the U.S. House of Representatives on May 7 requires mortgage lenders to take borrowers' repayment ability into account. It also makes it possible for borrowers to take legal action against entities that pool mortgages and sell them as securities on the secondary market.
The bill also will force lenders to retain a 5 percent interest in mortgages other than standard 30-year fixed and adjustable-rate loans. However, adjustable-rate mortgages that carry prepayment penalties or fees greater than 2 percent do not qualify for the exemption.
Source: Washington Post, Dina ElBoghdady (05/08/09)
The bill also will force lenders to retain a 5 percent interest in mortgages other than standard 30-year fixed and adjustable-rate loans. However, adjustable-rate mortgages that carry prepayment penalties or fees greater than 2 percent do not qualify for the exemption.
Source: Washington Post, Dina ElBoghdady (05/08/09)
Putting Mortgages into 'Plain Language'
Bank of America has debuted www.BankOfAmerica.com/HomeLoans, a new Web site for borrowers that includes a calculator that determines not just what size loan people can qualify for, but how much they can spend without being stretched too thin.
“We wanted to change the conversation to ‘How much house can I comfortably afford?’ rather than ‘What’s the maximum I can buy?’ ” said Aditya Bhasin, the product, pricing and strategy executive for Bank of America Home Loans.
The site was designed to be easy to read, spelling out a variety of contingencies, including the maximum payment that an adjustable rate mortgage could potentially cost.
The new site also offers what BofA calls Flat Fee Mortgage Plus, which has no application fee and a single closing fee that includes processing costs and fees for third-party services like appraisals.
It doesn’t include other standard costs like property taxes, homeowners’ insurance and prepaid interest.
Craig Focardi, a senior research director at the Tower Group, a financial consulting firm, said the idea for the plan is nothing new – it’s been tried by others. But the prominence of the programs could persuade competitors to adopt the features.
Source: The New York Times, Bob Tedeschi (05/08/2009)
“We wanted to change the conversation to ‘How much house can I comfortably afford?’ rather than ‘What’s the maximum I can buy?’ ” said Aditya Bhasin, the product, pricing and strategy executive for Bank of America Home Loans.
The site was designed to be easy to read, spelling out a variety of contingencies, including the maximum payment that an adjustable rate mortgage could potentially cost.
The new site also offers what BofA calls Flat Fee Mortgage Plus, which has no application fee and a single closing fee that includes processing costs and fees for third-party services like appraisals.
It doesn’t include other standard costs like property taxes, homeowners’ insurance and prepaid interest.
Craig Focardi, a senior research director at the Tower Group, a financial consulting firm, said the idea for the plan is nothing new – it’s been tried by others. But the prominence of the programs could persuade competitors to adopt the features.
Source: The New York Times, Bob Tedeschi (05/08/2009)
Sunday, May 3, 2009
Buyers Shouldn't Dismiss All ARMs
Potential home buyers in search of a mortgage are wary of all kinds of adjustable rate loans these days, but hybrid ARMs can be really good deals even in these times of historically low interest rates, some lending experts insist.
Hybrids are "a great product at a great rate," says Christopher Cruise, a mortgage broker in Silver Spring, Md.
Currently, starting rates are under 4 percent, generally a full percentage point lower than traditional, 30-year, fixed-rate mortgages. Hybrids are locked in at that starting rate for five, seven, or sometimes even 10 years, then they adjust—usually a maximum of 2 points a year with an overall cap of 6 or 8 points.
In the meantime, the savings on a hybrid ARM can be thousands of dollars and make sense for a buyer who doesn’t expect to be in a home for more than five or six years.
Even if they stay in the same house, it’s likely they’ll have an opportunity to refinance. "Seven years for a mortgage is an eternity these days," Cruise says.
He recommends that buyers do the math, considering the worst-case scenario. In many cases, particularly with jumbo loans, the savings will still be substantial even if the loan adjusts to the maximum for a couple of years.
Source: United Features Syndicate, Lew Sichelman (05/03/09)
Hybrids are "a great product at a great rate," says Christopher Cruise, a mortgage broker in Silver Spring, Md.
Currently, starting rates are under 4 percent, generally a full percentage point lower than traditional, 30-year, fixed-rate mortgages. Hybrids are locked in at that starting rate for five, seven, or sometimes even 10 years, then they adjust—usually a maximum of 2 points a year with an overall cap of 6 or 8 points.
In the meantime, the savings on a hybrid ARM can be thousands of dollars and make sense for a buyer who doesn’t expect to be in a home for more than five or six years.
Even if they stay in the same house, it’s likely they’ll have an opportunity to refinance. "Seven years for a mortgage is an eternity these days," Cruise says.
He recommends that buyers do the math, considering the worst-case scenario. In many cases, particularly with jumbo loans, the savings will still be substantial even if the loan adjusts to the maximum for a couple of years.
Source: United Features Syndicate, Lew Sichelman (05/03/09)
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